In the United Kingdom, the Advance corporation tax (ACT) was the scheme under which companies made an advance payment of tax when they distributed dividend payments to shareholders. The principle is similar to the way that interest earned on bank deposits in the UK normally has basic rate tax deducted by the bank before being paid to the account holder.
In general this payment meant that the recipients of the dividend were considered to have already paid basic rate tax on their dividend income. Certain recipients, including pension funds, who would not otherwise have paid income tax on the dividend income were entitled to claim back this (or later a lesser) amount from the treasury.
The amount of ACT paid by a company could also be offset against the company's profits reducing its final corporation tax bill.
Read more about Advance Corporation Tax: History
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